ISRAEL Trends and Developments Contributed by: Hagit Bavly and Hadil Nassif, Arnon, Tadmor-Levy
According to the review published by the Chief Economist at the Ministry of Finance of the State of Israel, in January 2024 there was a significant recovery in the number of residential units’ sale transactions, particularly in the new residential units’ market, with an increase of 14% in the number of transactions (new and second-hand), compared to January 2023. In February 2024, there was a 19% increase in the number of resi - dential units’ sales transactions compared to February 2023. These figures are still among the lowest figures for February since 2000. Long-Term Leases “Affordable housing” is defined in Israeli law as one of the following: • rental at a reduced price; and • long-term rental. The need to establish long-term institutional rental projects, which currently almost does not exist in Israel, is aimed to allow Israelies stabil - ity in their place of residence, even if they are unable to pay the cost of a residential unit. Since the middle of the previous decade, a reg - ulatory structure was established designed to incentivise and regulate the institutional market for long-term residential rentals. The inventory of such market in Israel is very low, and is in fact negligible. According to the Bank of Israel Annual Report for 2023, the rapid increase in the interest rate since April 2022, as well as the market players’ assessment that the interest rate will remain high for a relatively long period, deterred developers from participating in tenders for marketing land for long-term rental projects, and affected the economic viability of these projects. Also con - tributing to this was the change in the Encour -
agement of Capital Investments Law, such that the rental duration required to enjoy the benefits under the Law is at least 15 years on average out of the 18 years following the end of construction of a project. In 2021, the Israel Land Authority (the govern - mental authority handling land owned by the State, and leased) succeeded in marketing 97% of the land for the construction of long-term rental residential units. In 2022, the Israel Land Authority managed to market only 46% of the land for the construction of long-term rental resi - dential units. In 2023, the Israel Land Authority managed to market only 53% of the land for the construction of long-term rental residential units. In other words, despite the State of Israel’s actions in recent years to promote long-term institutional rentals (including the provision of tax incentives to developers) and the great interest in this new field from various institutional entities in recent years (mainly insurance companies and equity funds), long-term institutional rental is still negligible in scope and not significant in the real estate market in Israel. The Office Market The actions of the coalition parties in the Israeli Parliament to try and change the judicial system, the global economic crisis, and the increase in interest rates worldwide and in Israel contributed to the decline in rents of office space in 2023. By the end of 2019, the office market in Israel was growing. In the second half of 2020, and in light of the COVID-19 pandemic, there was a slowdown in demand for office space in Israel, and there was a moderate decline in rents in the central business district of Tel Aviv and near - by cities. In 2021, due to high demand (mainly from high-tech companies), rents in these areas
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